The Investment Risk-Based Capital (E) Working Group heard a presentation from the American Academy of Actuaries (AAA), which continues to recommend the development of a set of bond factors that includes an offset for the level of credit risk reflected in statutory reserves. The Working Group also received a report from the AAA, which recommends that the NAIC consider increasing the granularity in bond factors used in the Property/Casualty RBC Formula and the Health RBC Formula by expanding the number of bond rating classes from six to 20, as well as updating the factors.

Statutory Reserve Offset in Bond Factors  The level of credit risk assumed to be reflected in statutory policy reserves acts as an offset to the total credit risk modeled in the C1 bond factors, which is based on the risk premium and the default portion of the asset valuation reserve. The AAA recommends that the assumption for risk premium be set at the mean or expected level of the credit loss distribution, which is consistent with the existing solvency framework and C1 bond factors. The Working Group exposed the AAA recommendation for a 60-day public comment period ending October 4, 2018. Increased Granularity in Bond Factors In addition, the AAA presented a report on developing bond risk factors for the Property/Casualty RBC Formula and the Health RBC Formula. This report analyzed the impact of increased granularity in bond factors by expanding the number of bond rating classes from six to 20, as well as updating the factors. The report recommended that, in order to increase consistency between both the Property/Casualty RBC Formula and the Health RBC Formula, as well as similar bond factors between different lines of business, an increase in bond factors granularity and updated factors should be considered. The Working Group exposed the AAA report for a 60-day public comment period ending October 4, 2018.